Dollar Falls to Almost 1-Month Low Before Fed Decision

[Terryfx]

The dollar fell to almost the weakest level in one month against the euro on prospects the Federal Reserve will announce further stimulus when it concludes its two-day meeting today.

Demand for the 17-nation currency was bolstered as leaders at a Group of 20 meeting pledged to take “all necessary policy measures” to defend the currency union. A dozen of the 21 primary dealers who trade with the Fed expect some form of monetary easing. New Zealand’s dollar weakened after data showed the nation’s current-account deficit widened more than economists had estimated in the first quarter.

“There’s a degree of hope the Fed will announce stimulus measures tonight and that’s been undermining the dollar,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “If the Fed were to implement additional easing, it’s more likely to be modest steps.”

The dollar dropped 0.2 percent to $1.2709 per euro at 8:05 a.m. New York time, after reaching $1.2748 two days ago, the least since May 22. The shared currency added 0.2 percent to 100.36 yen. The Japanese currency was little changed at 78.96 per dollar.

The Fed will review new forecasts as it contends with financial stress in Europe and a U.S. unemployment rate that has remained above 8 percent for 40 months. JPMorgan Chase & Co. and Jefferies Group Inc. predict policy makers will extend the central bank’s so-called Operation Twist. The $400 billion program, which was announced in September and is due to end this month, involved selling short-maturity debt and buying longer- term bonds.

businessweek